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DreamWorks Animation Leaves Paramount for 20th Century Fox as Distributor

By Brooks Barnes August 20, 2012 3:59 pmAugust 20, 2012 3:59 pm

LOS ANGELES — DreamWorks Animation said on Monday that it had hired 20th Century Fox to distribute its big-budget cartoons, a move that leaves Paramount Pictures with a hole in its pipeline.

Like other small movie operations, DreamWorks Animation does not have the infrastructure to market and release its films to theaters worldwide. Instead, DreamWorks Animation, a publicly traded company, has paid Paramount a fee to handle those duties — about 8 percent of revenue generated by each release. DreamWorks Animation typically makes two movies annually.

That partnership is ending in November after seven years, and
Jeffrey Katzenberg, DreamWorks Animation’s chief executive, spent months scouring Hollywood for a new partner. (Sony was another potential partner.) Under the five-year accord announced Monday, Fox will receive an 8 percent fee for handling theatrical, DVD and international television distribution; Fox will receive a 6 percent fee for executing digital rentals.

DreamWorks Animation, which aspires to start a cable channel, will now handle its own domestic television distribution.

Fox had been seen as an unlikely partner for Mr. Katzenberg because the bigger studio already owns a successful animated movie unit called Blue Sky, maker of such hits as “Rio” and the “Ice Age” films. But cartoons have by far been the most consistent performer at the box office in recent years, and Fox says it has enough room on its release schedule for more.

This rent-a-studio arrangement carries little risk for Fox because DreamWorks Animation will shoulder production costs of about $150 million for each movie. Still, Mr. Katzenberg is known as a demanding customer and will undoubtedly want to cherry-pick release dates, setting up potential conflicts with Fox’s own schedule. Fox dismissed that notion on Monday, saying Mr. Katzenberg’s arrival would give Blue Sky greater leverage with theater owners and advertising partners.

Paramount, struggling with a series of live-action production delays, is working on cartoons of its own — notably a new “SpongeBob SquarePants” movie — but DreamWorks Animation provided a reliable income generator. Paramount’s two biggest releases of the year are both expected to be DreamWorks Animation pictures. The annual value of the DreamWorks Animation business for Paramount was not disclosed, but the cartoon company paid Paramount about $50 million in fees last year tied to theatrical releases alone.

Mr. Katzenberg has been trying to convince a skeptical Wall Street that his company is strong despite poor financial results; DreamWorks Animation reported a 63 percent drop profit for its most recent quarter. His efforts include an acquisition and an entertainment district in Shanghai.

A version of this article appears in print on 08/21/2012, on page B3 of the NewYork edition with the headline: DreamWorks Animation Moves to Fox for Distribution.